When do I need to split personal and business expenses?
You've decided to start a business— that's fantastic! You're on your way to joining a community of entrepreneurs, inventors, artists, and business tycoons, forging their own paths into new, as-of-yet uncharted successes. Congratulations. You've got this.
It's important to get yourself started on the right foot. One of the biggest mistakes new business owners make is not separating their personal and business funds. This can lead to all sorts of hassles down the road, from increased IRS scrutiny to difficulty writing off expenses and taking advantage of other lucrative tax-saving measures.
Fortunately, it's easy to keep things separate. Here are some answers to common questions about managing your personal accounts and business finances.
Why should I separate my expenses?
There are several reasons why you should keep business and personal finances separate:
1. It's professional.
When treating a client or paying for a business expense, you are projecting professionalism. "This is not for me, this is for my business," your business credit card tells your vendor.
2. It's tidy.
When tax season comes around, it's much easier to look at your broadsheets and know that every single expense has a business-related purpose. Trying to sort through a year's worth of expenses to separate personal and business items is a nightmarish experience and not a good use of your valuable time—especially when automated features like instant receipt-matching reminders from Brex can keep your books clean!
3. It makes the IRS happy.
When listing deductible expenses, the IRS is far more likely to accept tax deductions and certify business losses if there's a clear separation between business income and personal funds. The IRS is known for denying deductions for 'hobbies,’ so it's best to keep business and personal expenses separate from the start.
4. It allows you to maintain an accurate picture of the health of your business.
By keeping accounts separate, you can look at your business bank account or Brex dashboard and see an accurate overview of the fiscal status of your operation. If your personal spend is intermingled alongside your business expenses, you may calculate an inaccurate burn rate, make inaccurate assumptions about cash flow trends, or be led towards other unwise bookkeeping decisions. With Brex’s ‘Reports’ function, you can easily get an overview of your cash flow forecast, keeping track of your business goals week over week, year over year.
There's really no reason not to open an account for your small business.
When should I open a business checking account?
As soon as possible. Ideally, before you generate any income or business expenses, you've already opened a business account and set-up your payments structure to channel funds in that direction.
Alternatively, you can open a Brex account. Brex is similar to a traditional business checking account, but it allows you to earn rewards and cash back on your spending, issue unlimited virtual credit cards to your team, and more. Whether you're an LLC, a c-corp, or an established s-corp, Brex makes it easy to open an account and begin cataloging your business purchases.
Will this help me build business credit?
Yes! Having a strong business credit score is your gateway to obtaining the capital you need to expand, cover day-to-day expenses, purchase inventory, hire staff, and conserve cash on hand. If you plan on taking out business loans, you're going to want to build that credit score.
The Brex Card works like a charge card. The Brex Card paid daily reports to the three leading credit bureaus and can help build your business credit score. By building credit early and often, you’ll be compounding your credit reputation, and will have a greater chance of qualifying for growth-fueling financial opportunities. Get that credit.
It’s Time to Open a Business Account
Brex allows you to open a new account in minutes and start divvying up those business expenses.
Brex spend management tools let you monitor your overall spend over a given time period, highlighting percentage increases and decreases. As expenses are automatically categorized, you can see which departments spend the most, which merchants you’re spending on, which users or employees spend the most, and an overview of all individual transactions within these categories. And with seamless integration with Quickbooks, NetSuite, Xero, and other accounts, you’ll save time by entirely eliminating manual data entry.
With so many benefits both at tax time and throughout your growth journey, you can be assured that keeping your finances separated, organized, and fully operational will pay for itself year over year.